To dividend investors, yield is often the first thing that’s looked at when searching for a suitable stock to buy (in addition to this piggybacking strategy, which is pretty good too). While it is important to understand how much return a company’s dividend payments can generate on a yearly basis, it’s an incomplete way to perform this analysis. By selecting higher yield stocks that pay a small percentage of their earnings out as dividends—a metric commonly termed “payout ratio”—we can find names that have the possibility of dividend growth in the future.
Over the past five years, the financial services sector has had the lowest aggregate return in the entire universe of global equities and year-to-date, it’s sixth of eleventh in terms of total return. With this in mediocrity in mind, it’s even more important for anyone hunting for income in this space to find stocks that may boost their payouts going forward. Let’s take a look at four lesser-known names we found with dividend yields above 3%.
Sumitomo Mitsui Financial
Of all the large-cap stocks in the financial sector (+$10B market cap) with dividend yields of at least 3%, Sumitomo Mitsui Financial Grp, Inc.(ADR) (NYSE:SMFG) pays the lowest percentage of its earnings out as dividends. Over the past twelve months, the Japanese financial services company sports a payout ratio of less than 20% and a dividend yield near 5.3%. In April, Sumitomo upped its full-year dividend forecast to ¥70 per share from ¥50 per share, with half of the increase attributable to a special dividend given out for the company’s 10th anniversary.
Despite the fact that the bank’s bottom line has was estimated to shrink by over 25% yoy earlier this year, shares of Sumitomo have risen by 36% year-to-date as earnings have largely beaten analysts’ consensus. As Bloomberg so ardently states, this negative growth has occurred as Japan’s “monetary easing makes loans less profitable even as borrowing picks up amid an economic recovery [in the country].”
With a forward price-to-earnings below 11 and a price-to-book multiple near parity, however, it appears that investors aren’t fully appreciating the profits this foreign bank is generating. The dividend growth, high yield and moderate payout ratio are additional pluses, and the presence of a value investor like David Dreman and a quant guru like Jim Simons further to notion that there are multiple reasons to be bullish on Sumitomo Mitsui.
Banco Bilbao Vizcaya Argentaria
Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), meanwhile, is another international financial large-cap with an exceptionally solid dividend yield and a reasonable payout ratio. Banco Bilbao currently offers a yield of 3.5% and has paid dividends in every quarter since the beginning of 1997, and it pays around 41% of its EPS out as income to investors.